Are we asking too much of financial reporting?

It plays an essential role in explaining past performance but on its own it cannot provide a complete picture of business value. More is needed to help shareholders understand how management is driving the business forward and how changes in the business environment might present new opportunities and challenges.

Investor presentations have evolved to address part of this reporting gap by addressing a more forward looking perspective on business value. There is a danger with this approach, though. The quality and content of these presentations varies, and they may address only some aspects of business value. Boards may also be concerned with the communication of some of their most price-sensitive messages being driven through less formal reporting channels without the backstop of the annual report.

A better approach lies in the narrative reporting content of the annual report. It is time for this to evolve to provide a picture of how business value is being developed and protected. We need to see reports built around a company’s unique business model, addressing the unique factors that drive longer-term value for that business.

In practice this means:

more focus on the operational drivers of performance;

more focus on the resources on which the business depends; and

providing readers with the information to form their own views on future performance.

Explore the links and publications on this page for more views and information.